Equipment Financing & Equipment Leasing


Feeling a bit anxious as you realize it’s time to invest in new equipment? Don’t worry, you have options!

Periodically, every business needs to upgrade, replace or add equipment. But whether it’s new technology or standard machinery, you might wonder if you can afford it—or whether the purchase will cripple your business with cash flow problems.

Fortunately, we’re here to explain how you can get equipment in just a few days without exhausting your available funds. Read below to learn about Equipment Financing and Equipment Leasing.

What is Equipment Financing?

Equipment financing allows business owners to buy new equipment using a loan that can be paid off over time. The purchased equipment serves as collateral, securing the loan so that lenders can seize the equipment upon default.

Designed specifically for the purchase of any type of equipment, this type of loan enables business owners to maintain or expand business operations without causing cash flow problems.

How Does Equipment Financing Work?

Consider how car loans work. You make a down payment, followed by subsequent interest and principal payments until you own the car. If you can’t make payments, the bank or dealership will repossess the car and your personal credit will suffer.

Equipment financing involves a similar process. Most equipment loans (but not all) require a down payment, followed by interest payments in monthly installments. Once it’s paid off, you own the equipment. If you can’t make payments, the lender can seize the equipment and your business credit will suffer.

The price of the equipment ultimately determines the loan amount. For example, if you’re looking to purchase a new machine worth 10,000, you’ll get a loan in the range of 7,000-10,000.
Rate of depreciation, above all, determines the length of the loan. Equipment that quickly depreciates will need to be paid off sooner. After all, lenders need collateralized assets to retain their liquid value should the borrower fail to pay.

As an example, computers quickly depreciate as new models are released yearly. Therefore, a loan to buy new computers will need to be paid off relatively quickly. Gym equipment, on the other hand, will retain its value for a substantial period of time. A new set of barbells and heavy weights likely won’t be replaced by the hottest new strength training equipment in 5-10 years. Lenders, in this case, can offer a longer-term loan.

Anticipated lifetime value of equipment also factors into term length. New office furniture may not depreciate as a result of new furniture models on the market, but wear-and-tear will surely bring down its value over time.

Make sure you understand the rationale of your loan conditions. Experienced lenders know how to evaluate all types of equipment and should clearly explain to you how they arrived at the loan amount and term length.

Why Use Equipment Financing?

Here’s what you should ask yourself before pursuing equipment financing:

Will I save money by purchasing the equipment in full right now? Or, would it damage my cash flow and cause other areas of my business to suffer?

If you can afford to purchase new equipment right now, avoiding interest payments for the next few months or years, there’s no need to read any further. However, if you don’t have that luxury, consider equipment financing as a path towards getting the necessary equipment without an interruption in cash flow. After all, the right piece of equipment should help you get an ROI that exceeds the cost of interest payments.

Pros of Using Equipment Financing

Alternative to traditional bank loan if your credit score is less than perfect.

Fixed terms – you can count on the same rates for the duration of the loan.

No need to collateralize assets other than purchased equipment (in most cases).

Perfect for equipment that will retain its usefulness for several years.

Can be used with Section 179 to deduct the full price of the equipment on this year’s tax statement (even though with financing, you’re not even paying that this year!).

Cons of Using Equipment Financing

High interest rates, depending on the type of equipment and your credit score.

Coverage of only 80-90% of equipment cost, leaving you to pay 10-20% in addition to monthly installments.

Initial down payment may be required.

If equipment becomes outdated, you’ll have to trash it or sell it at a significant markdown.

Equipment financing can serve almost any type of business. Purchase new equipment for restaurants and doctor’s offices; industrial machinery for farming, construction or manufacturing facilities; new computers or furniture for offices; or even used fitness equipment for gyms.

Equipment Financing Rates & Terms

As discussed, the length of the term will be determined by depreciation rate and expected lifetime of the equipment. This can range from a few months to 10 years.

Generally, you’ll make a down payment of up to 20% (often less), followed by fixed monthly installments of principal plus interest. Rates can range between 6% to 30% depending on equipment, your credit score and other relevant financial history (see below for application requirements).


Interest Rates


Loan Amount


Credit Score

2 days

Funding Speed

Alternative lenders typically offer equipment loans of up to $150,000. With a fairly quick application process, you could have the funds within 2 days. Traditional banks can offer equipment financing of up to $2 million, but to qualify you’d need stellar credit and several years in business.

How to Apply and Qualify

With 6 months in business, an average yearly revenue over $100,000 and a credit score of at least 575, you can likely find an alternative lender willing to offer you an equipment loan. The longer you’ve been in business and the higher your credit score, the more favorable rate you can expect.

To apply, be prepared to submit a driver’s license, credit score, voided business check, bank statements, business tax returns and equipment quote.

While credit does matter, lenders may overlook a mediocre credit score if other financials are strong.e.

Contact us today to learn more about equipment financing!

If you need equipment that tends to become obsolete quickly (e.g. computers, healthcare technology, etc.), a lease could make more sense than a loan.

Great for small businesses with limited capital, leasing can provide you with the equipment you need NOW without causing cash flow problems. Instead of dishing out a hefty lump sum for new machinery, pay low monthly installments spread out over months or years.

What is Equipment Leasing?

An equipment lease is a rental agreement in which the owner of the equipment (lessor) allows a company (lessee) to use the equipment in exchange for payments over time. Potential lessors include leasing companies, banks and equipment distributors, while lessees are usually companies in need of equipment for business operations.

The ELAA (Equipment Leasing Association of America) estimates that 80% of all companies lease equipment. And for good reason! If you need equipment that you know will quickly lose its value, why purchase it outright—or worse—pay an expensive loan just to own something that no one wants in a few years?

How Does Equipment Leasing Work?

Generally, there are two types of Equipment Leases: Operating Leases and Capital Leases.

Operating Leases are usually short-term and include cancellation provisions. They generally last between a few months to a few years. If the company decides the equipment is no longer necessary, it can cancel the lease within terms stipulated in the agreement. These leases typically end with the lessee returning the equipment or renewing the lease at a discount.

This agreement can be beneficial to both parties. The leasing company probably bought the equipment at a bulk rate. The leasing contract allows them to generate income on the equipment even as it depreciates. The lessee, on the other hand, can use—not buy–equipment that is likely to become obsolete relatively soon. This helps the lessee avoid cash flow disruptions that would tie up funds needed for other business operations or growth opportunities.

Capital Leases are meant for more expensive equipment, have a longer duration, and are usually non-cancellable. Lessees often use this type of lease with the intention to own the equipment at the conclusion of the contract. It offers a way to “buy in” to ownership of the equipment rather than purchasing it upfront or making a large down payment.

While Capital leases and other hybrid leasing models serve a purpose, we’ll keep our focus on Operating Leases, which provide small business owners with the ultimate cash flow advantage.

Why Use Equipment Leasing?

Here are several benefits, and a few disadvantages.

Pros of Using Equipment Leasing

Lower Monthly Payments spread out over time.

Service Agreements and Add-ons often included. (This can include shipping and installation, as well as equipment repair.)

No need to worry about owned equipment becoming obsolete.

May include option to purchase equipment at discounted rate.

May offer tax credit eligibility under Section 179 Qualified Financing. (Depending on type of lease, you may be able to deduct lease payments as business expenses.)

Cons of Using Equipment Leasing

Operating Leases typically don’t end with ownership of equipment.

Contract could demand costly cancellation penalty.

If equipment doesn’t depreciate as expected, loan may have made more sense than a lease in hindsight.

Equipment Lease Rates, Cost & Terms

Unlike equipment loans, equipment leasing doesn’t require a down payment. Furthermore, the leased equipment serves as “collateral” because if lessees don’t make payments, the lessors can simply take back what belongs to them.

The lease duration will depend on a company’s needs and the cost of the equipment, but operating leases generally span between 12-60 months. Payment schedules are usually structured in monthly or quarterly installments, but terms can vary according to season and industry.


Interest Rates


Loan Amount


Credit Score

2+ days

Funding Speed

Lessees should know the market value of the leased equipment in order to assess the fairness of terms and to insure the equipment against loss or damage. Lessees must also consider the rate of annual depreciation in order to agree on cancellation terms and end-of-contract options.

For example, a doctor’s office leasing a medical device should consider whether they expect new technology to replace it in the upcoming years. If so, it would be smart to insist on an option to terminate the lease. This could be an agreed-upon notice period or a cancellation fee that’s reasonable to both lessor and lessee.

Leasing Payments are calculated by using the following formula:

Lease Payment = Depreciation Fee + Finance Fee + Sales Tax

The Depreciation Fee is similar to a principal payment on a loan, except in this case it represents the loss of the equipment’s value during the lease period. The Finance Fee is similar to an interest payment on a loan. However, it is determined by multiplying an interest rate by the depreciation cost plus the estimated residual value of the equipment at the end of the lease. Sales Tax is applied to the sum of the Depreciation and Finance Fees and is usually required at lease signing.

Pay particular attention to the Finance Fee. For equipment with a value of less than $100,000, expect a finance fee between 8-20%. More expensive equipment will have longer terms and lower financing fees, typically between 4.5-8%.

Depending on the type of lessor, your needs and the mobility of the equipment, you could have funding and equipment within 2-4 days.

Who Qualifies for Equipment Leasing?

Equipment leasing can be used for almost anything, including construction and manufacturing machinery, software and technology equipment, commercial vehicles, medical devices and restaurant equipment.

The qualifications to obtain an equipment lease depend on the cost of the equipment, which might range from $10,000 to $2 million. Getting a lease on equipment costing between $10-100K should be fairly easy for any company. The process could, in fact, be similar to applying for a credit card.

With more expensive equipment, leasing companies will be much stricter, requiring a credit score of over 600 and other evidence of financial stability. The application for leasing equipment with a cost of over $100K will seem more like a loan application, requiring the submission of tax records, bank account statements, and other relevant financial documents.

Does leasing sound like the most efficient way for your business to get equipment? Contact Us today to discuss customized solutions for you!